Canada. Barley shortages could have beer drinkers crying in their suds

Patio season is just around the corner, but a global shortage of brew-quality malt already has some brewers forecasting a possible price spike at the taps. Flooding lowered the quality of the latest barley crops in Canada and Australia, leaving some unsuitable to turn into malt, the germinated barley product used in beer. And by July, malt makers dependent on Canadian supplies will be "running on fumes" ahead of the harvest in autumn when the price of malting barley will jump by one-third, an official with the Canadian Wheat Board said. Steve Beauchesne of Beau's All Natural Brewing Co. said Monday that any significant spike in barley cost will undoubtedly affect the company's bottom line and could result in a price jump. He said that impact likely would be felt most keenly by smaller operations that use just a handful of ingredients. "The cost of malted barley is by far the biggest ingredient expense we would have," said Beauchesne, co-founder of the brewery in Vankleek Hill, Ont. "Industrial brewers are using as much as 70 per cent corn syrup these days instead of barley to get their sugar content, so a craft brewer will be affected more than a mega-brewer. "If your most expensive ingredient goes up dramatically, you're going to have to eat the expense or raise the price. I can't say which exactly we'd be doing . . . but we try to keep our price as low as we can, so we're not in a position to eat big jumps in expenses." Beauchesne said the last — and only — time their beer jumped in price was in 2008 after a 15 per cent spike in the cost of malted grains. Brewers might get a reprieve this year from tight supplies of malting barley in top exporter Canada, but higher costs likely will force them to raise the price of beer next year. Many North American malt makers and brewers have a 2011 cost buffer because of forward-pricing contracts with the Wheat Board, the monopoly seller of Western Canada's malt barley. Barley is the second-biggest cost, after labour, for some brewers. Beau's, however, does not have such an agreement to fall back on in the short term. "We have a good relationship with our supplier, but we're not locked into a five-year contract or anything, so if the prices do go up quickly, we would be hit pretty much as soon as the pricing increase comes into effect," Beauchesne said. Molson Coors, one of Canada's two biggest brewers, is largely safe from barley price shock this year, said company spokesman Adam Moffat. But barley prices are unlikely to ease soon, leaving the cost of next year's pint in question, other brewers say. Beer price increases may happen in the second half of this year, but are more likely starting in 2012, said Dwayne Dubois, chief financial officer at Alberta's Big Rock Brewery. "Drink up now, is my advice," Dubois said. Canada's biggest grain handlers generally like high crop prices. But they'll also take a hit — Viterra Inc. and Cargill Inc., Canada's No. 1 and No. 3 grain handlers, face higher costs. Malt makers and brewers also face the challenge of turning lower-quality barley into malt that will produce consistent beer quality, said Great Western's brewmaster, Viv Jones. The smallest malting barley supply in about nine years means some barley doesn't germinate properly and is discarded. Wet growing-season weather in Canada and Australia has forced the same quality problems on brewers around the world. Global malting barley exports look to be flat at around 4.1 million tonnes in the current 2010-11 crop year, but Lorelle Selinger, manager of marketing and sales for barley with the Canadian Wheat Board, said that's not the whole picture. "This year all of the demand was met, but it was met with very poor-quality barley," she said. The Wheat Board will need the upcoming crop to satisfy beer thirst in China, the world's biggest malting barley importer and top beer brewer, which last year agreed to its biggest-ever purchase from Canada. The industry is also eyeing spring planting decisions by Canadian farmers, who enjoy a rare chance to choose from many highly priced crop options. The Wheat Board forecast last week total Canadian barley production projected for 2011-12 at 8.5 million tonnes, up 12 per cent from last year, but still well off the five-year average of about 9.9 million tonnes. Wet ground has raised the chances of delayed plantings, which might favour a barley rebound since the grain has a shorter growing season than other crops.